Skyworks Solutions (NASDAQ:SWKS), stock has long been seen as a cheap proxy for Apple (NASDAQ:AAPL), its largest customer. When sales are growing fast, analysts love to talk about Skyworks (which makes radio chips) getting away from that dependence. When growth is slow it hugs that dependence tight.
For SWKS stock, 2023 was a tough year. It had $685 million in sales to Apple, representing 64% of revenue. About 85% of those chips went into the iPhone. The question for investors is whether that other 36% of sales is worth worrying about.
A Closer Look at SWKS Stock
While Skyworks is a tech stock, you don’t buy it as one. You buy it for the dividend. That dividend jumped from 38 cents/share five years ago to 68 cents last November. If you are a long-term investor, that’s your return. Shares in January were just 23% ahead of where they were in early 2019. We’re talking about single digit annual returns.
Skyworks was much in vogue during the 2021 bull market. Shares traded at over $190 in the middle of that year, but you should have sold. It trades today closer to $105.
The highs were marked by public statements that Skyworks was going beyond Apple. You still see such stories, but analysts no longer pay attention to them.
In 2021 Skyworks bought Silicon Laboratories, hoping that chips for autos would reduce its Apple dependence. So far, they haven’t.
Will Apple Leave?
When they’re not fretting about Skyworks’ dependence on Apple, bears are worried about Apple walking away.
Apple has long focused on supplying its own silicon. Capturing those profits let it grow its bottom line without growth in unit sales. Its focus has mainly been on replacing Intel (NASDAQ:INTC). But with that work mostly complete it’s now going into its radio sets. This puts Skyworks in the crosshairs alongside Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO).
Personally, I downplay those threats. The margins for Broadcom and Qualcomm are much bigger than the 47% Skyworks earns. Qualcomm and Apple have been in court for years. Broadcom is known for pushing its proprietary advantages hard.
All that, plus Skyworks’ relatively small size, a market cap of $16.5 billion, tells me Apple should drop it down the priority list.
Why Buy Skyworks?
Skyworks stock is a big favorite among institutions, who have 84% of the common. Fundamentally, it’s safe, a good long-term holding
For the September quarter, Skyworks had GAAP operating income of $254 million, and earnings of $1.52 per share, on revenue of $1.22 billion. For the December quarter, it expects similar results, making the 68 cent per share dividend safe.
What most excited investors last year was $1.6 billion of free cash flow, up 76% from a year ago. CEO Liam Griffin emphasized design wins for Android 5G phones and WiFi 7 base stations.
It was enough to keep analysts on-side. There are currently 24 of them, with 9 saying buy it and 2 saying sell.
The Bottom Line on SWKS Stock
Nowhere in that quarterly release does Griffin mention AI. That’s interesting because much of Skyworks’ non-Apple growth should come from client devices. Medical devices, wearables, factory robotics, and autos are all subject to AI hype.
While most reporters focus on AI writing stories like this one, growth today is coming from managing fleets of client devices in hospitals, factories and on battlefields. What I call the “Machine Internet” can orchestrate the work of entire institutions, software doing things people have never been capable of.
The fact that Skyworks analysts remain focused on the iPhone is telling. If AI isn’t growing in areas where it should grow, might the whole hype machine go off the rails? SWKS stock may not just be a proxy for Apple’s problems, but for AI’s as well.
As of this writing, Dana Blankenhorn had LONG positions in INTC, QCOM and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.